Compliance Q&A: Health Coverage for Newborns, Stepchilden, and COBRA for former Spouses
- June 26, 2024
- Posted by: Gus Altuzarra
- Category: Compliance Q&A
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5.16.24 | HEALTH COVERAGE FOR NEWBORNS
Q. I have seen a reference to newborns being “automatically covered” by the mother’s health plan for 30 days after the date of birth, but I can’t find a source. The closest I can find are the HIPAA special enrollment rules allowing coverage retroactive to date of birth, but the employee has to actually enroll the child. Can you clarify the rules?
A. The “automatically enrolled” references are misleading. An employee must affirmatively elect to have a newborn covered. HIPAA gives an employee a special enrollment window in which to ask for coverage, and the law provides that if you elect coverage for the newborn within 30 days, coverage will automatically go back to the date of birth. However, the employee must affirmatively enroll the newborn. If the employee does not enroll the newborn in a timely manner, there is no coverage for the newborn at all (including the first 30 days of the newborn’s life).
A. The “automatically enrolled” references are misleading. An employee must affirmatively elect to have a newborn covered. HIPAA gives an employee a special enrollment window in which to ask for coverage, and the law provides that if you elect coverage for the newborn within 30 days, coverage will automatically go back to the date of birth. However, the employee must affirmatively enroll the newborn. If the employee does not enroll the newborn in a timely manner, there is no coverage for the newborn at all (including the first 30 days of the newborn’s life).
6.6.24 | COVERAGE FOR STEPCHILD
Q. Can an employee add their stepchild to their insurance plan?
A. The employee can add a stepchild under the age of 26, regardless of whether the employee is the guardian. The ACA prohibits conditioning eligibility on the residence of the child, tax dependent status, or financial dependency. The only thing that matters is that the person is a child (which includes a biological child, stepchild, adopted child, and foster child) and is under age 26.
A. The employee can add a stepchild under the age of 26, regardless of whether the employee is the guardian. The ACA prohibits conditioning eligibility on the residence of the child, tax dependent status, or financial dependency. The only thing that matters is that the person is a child (which includes a biological child, stepchild, adopted child, and foster child) and is under age 26.
6.13.24 | OFFERING COBRA TO FORMER SPOUSE DROPPED FROM HEALTH PLAN
Q. An enrolled employee’s divorce was finalized on 3/25/24. She dropped her spouse from coverage effective 1/1/24 and elected Employee + Children coverage only. Was the divorce a qualifying event that would allow the ex-husband to elect COBRA coverage? Was the employee allowed to drop her spouse during 1/1 open enrollment but prior to the divorce being finalized?
A. Typically, COBRA is only offered to employees and dependents on the health plan at the time of the qualifying event. Since the former spouse was not on the health plan at the time of the divorce, the normal rule is that the former spouse is not offered COBRA.
However, the IRS says that if someone is dropped from coverage in anticipation of a divorce, and then the divorce occurs, that individual must be offered COBRA from the date of divorce (not the date they were dropped from the plan). See IRS Revenue Ruling 2002-88 for the official guidance.
A. Typically, COBRA is only offered to employees and dependents on the health plan at the time of the qualifying event. Since the former spouse was not on the health plan at the time of the divorce, the normal rule is that the former spouse is not offered COBRA.
However, the IRS says that if someone is dropped from coverage in anticipation of a divorce, and then the divorce occurs, that individual must be offered COBRA from the date of divorce (not the date they were dropped from the plan). See IRS Revenue Ruling 2002-88 for the official guidance.
6.20.24 | CAFETERIA PLANS AND FINANCIAL HARDSHIP
Q. For small group clients that do not have to offer medical plans, should we discourage the use of a cafeteria plan for pre-tax premiums if they want to allow employees to drop the medical plan mid-year if they cannot afford it?
A. If you avoid using a cafeteria plan to allow employees to pay for medical premiums, the downside is that the employees must pay for the premiums on an after-tax basis. The upside is you avoid all of the Section 125 rules that generally require elections be irrevocable for the year, unless there is a qualifying life event (and insurance being too expensive is not a qualifying life event). So a good solution for employers that want to offer employees maximum flexibility is to allow them to pay premiums on an after-tax basis.
If giving employees the choice between pre-tax (through a cafeteria plan) or after-tax premiums is too confusing or administratively complex, the employer could choose NOT to offer a cafeteria plan and make all premiums be paid on an after-tax basis. Of course, if the employer does not think the financial hardship issue will occur too frequently, offering a cafeteria plan makes the most financial sense for the employees and the employer.
Answers to the Question of the Week are provided by Kutak Rock LLP. Kutak Rock provides general compliance guidance through the UBA Compliance Help Desk, which does not constitute legal advice or create an attorney-client relationship. Please consult your legal advisor for specific legal advice.
A. If you avoid using a cafeteria plan to allow employees to pay for medical premiums, the downside is that the employees must pay for the premiums on an after-tax basis. The upside is you avoid all of the Section 125 rules that generally require elections be irrevocable for the year, unless there is a qualifying life event (and insurance being too expensive is not a qualifying life event). So a good solution for employers that want to offer employees maximum flexibility is to allow them to pay premiums on an after-tax basis.
If giving employees the choice between pre-tax (through a cafeteria plan) or after-tax premiums is too confusing or administratively complex, the employer could choose NOT to offer a cafeteria plan and make all premiums be paid on an after-tax basis. Of course, if the employer does not think the financial hardship issue will occur too frequently, offering a cafeteria plan makes the most financial sense for the employees and the employer.
Answers to the Question of the Week are provided by Kutak Rock LLP. Kutak Rock provides general compliance guidance through the UBA Compliance Help Desk, which does not constitute legal advice or create an attorney-client relationship. Please consult your legal advisor for specific legal advice.
